Honesty is such a lonely word… « UK Trade Policy Observatory

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22 July 2021

Michael Gasiorek is Professor of Economics and Director of the UK Trade Policy Observatory (UKTPO) at the University of Sussex. L. Alan Winters is Professor of Economics and Founding Director of the UKTPO.

The UK Government’s command paper on Northern Ireland published yesterday (21 July 2021) is significant in four regards.

First, because it explicitly recognises – at length – that the Protocol is not working (at least not for the UK) and needs to be modified in form or in implementation. This is almost certainly correct.

Secondly because it fails to recognise the UK Government’s culpability in signing up to the Protocol in the first place, to admit the chaos resulted from its desire to get ‘get Brexit done’ or to acknowledge that the Government did not understand the consequences of what it signed up to. Instead, there are several pages of paragraphs devoted to blaming the previous UK Government, the UK Parliament and the EU. It reads like a client’s submission to their divorce lawyer – full of blame-shifting, faux sadness and passive aggression. It reflects weakness and can only serve to diminish the Government’s international standing.

Third, because it proffers a previously unheard-of solution, which to our knowledge has never been used to manage international trade, which is to trust firms to report honestly and correctly what they are selling where. The EU cannot accept this.

Fourth, because it contains an implicit (actually pretty explicit) threat to invoke Article 16 of the Protocol which would allow either party to invoke safeguarding and/or rebalancing measures “if the application of this Protocol leads to serious economic, societal or environmental difficulties that are liable to persist, or to diversion of trade”. This is crude diplomacy, and even if Art. 16 were invoked it is not clear what safeguarding or rebalancing measures would be consistent with the Protocol.

As stated above, it is correct that the Protocol is not working well for the UK and is exacerbating political tensions within Northern Ireland, between Northern Ireland and Great Britain, and between the UK and the EU. This does need review and some tweaks of implementation; possibly even renegotiating the Protocol, or elements of the Protocol. The Command Paper rightly identifies that any changes would require “removing the burdens on trade in goods within the UK while managing the real risks to the EU Single Market” (and this is particularly the case for agri-foods) and that any new agreement ensures “that businesses and consumers in Northern Ireland can continue to have normal access to goods from the rest of the UK on which they have long relied.”

The EU would probably accept this as a proposition, even if they felt that the problem was one which the UK Government had created for itself. The disagreement is over how to achieve this. It seems that there are four possible outcomes on the table:

1. Status Quo: Continue as we are – with the concomitant disruptions and tensions.

2. Swiss approach: For the UK and the EU to sign a Swiss-style veterinary agreement which essentially involves the UK signing up (possibly only on a temporary basis) to the EU Sanitary and Phytosanitary (SPS) regime. This would remove the need for a wide range of checks and would greatly facilitate flows between Northern Ireland and Great Britain. But, it does require the UK signing up to the EU SPS regime, which it manifestly does not want to do.

3. Equivalence with checks: For the UK and the EU to agree some form of equivalence arrangements i.e that while UK standards and regulations may differ from those of the EU for the purposes of sale in the Northern Ireland market they are deemed as ‘equivalent’. However, this too would require customs checks and bureaucratic processes to ensure that firms were complying and would almost certainly not be able to avoid reference to EU legal structures.

4. Equivalence with no checks (honesty box): This is essentially the same as (3) but without the checks; it is part of what the UK Government is proposing.

Option (1) is almost certainly unsustainable; (4) is almost certainly unattainable; (2) is unpalatable to the UK and would involve such a political volte-face that it is very unlikely to happen. The most likely outcome, therefore, and the route the Government should be pursuing with the EU is (3). It does require the EU to show a degree of flexibility that, so far, it has refused. But given the sensitivities in Ireland and the highly specific nature of the problem, it would not be an unreasonable ask by the UK Government, especially if it were accompanied by some recognition of responsibility for the mess and a dialling down of the rhetoric.

This solution is not ideal because it involves checks on trade between Great Britain and Northern Ireland and so will still have an impact on trade. That is not a consequence of Brexit per se but is the consequence of the form of Brexit that this Government chose to pursue. It would help negotiations if the UK Government acknowledged this and the need to move forward cooperatively, instead of trying to divert blame and threatening to invoke Article 16. Brace for tensions in September as the existing grace periods draw to a close.

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